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3/04/2009

Bogus "no cost" plan offered by economist and law prof

Here is the bottom line. If this was in the interest of the mortgage holders, they would offer it on their own. The government wouldn't have to force them to do it. Fox News has the discussion here:

But University of Chicago professors Eric Posner and Luigi Zingales offered what they described as a no-taxpayer-cost plan that would require the government to force lenders to reduce mortgages for all homeowners who live in a neighborhood where house prices have dropped more than 20 percent of the market value of the house.

"In exchange, these homeowners would yield to their lenders 50 percent of the future appreciation of the house," they wrote in an article for Slate this week.

"This plan is very low-cost," they wrote. "It could be introduced as a prepackaged bankruptcy, requiring just a judicial stamp of approval." . . . .

Posner and Zingales noted that Congress is considering similar plans that would allow homeowners to enter Chapter 13 bankruptcy to reduce their mortgages to the market value of the house.

"But Chapter 13 cases are slow and expensive, and the country's few hundred bankruptcy judges cannot handle millions of these full-blown proceedings," they wrote.

"Our plan, by contrast, is quick and dirty: It strips away the irrelevant elements of Chapter 13 as well as relying on zip code-level housing price indexes to deal with appraisals." . . . .